Shaw Wallace Law Board freezes M.R. Chhabria's voting power

Manohar Rajaram Chhabria is furious. Puffing away at an extra-long cigarette in a plush hotel suite in New Delhi, the 39-year-old Dubai-based businessman can barely restrain himself from rolling out the expletives.

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T.N Ninan

December 3, 2013

ISSUE DATE: March 31, 1985

UPDATED: March 6, 2014 15:12 IST

Manohar Rajaram Chhabria is furious. Puffing away at an extra-long cigarette in a plush hotel suite in New Delhi, the 39-year-old Dubai-based businessman can barely restrain himself from rolling out the expletives.

For after having coughed up more than $27 million for a 38.74 per cent stake in Shaw Wallace, he finds his voting power frozen by the Company Law Board, his intentions questioned, and his time taken up in a messy fight that he had never sought. "I have no time for a damaging situation," he says.

But he is also not one to run away from a difficult situation, and Chhabria is now ready for battle to ensure that he gets control of the company he has paid for. Chhabria's problem is that the Company Law Board has instituted an enquiry into the real ownership of the shares that he has bought, pending which his voting rights on the shares have been frozen.

The shares themselves were bought indirectly, by buying up R.G. Shaw and Company, the overseas outfit that still owns the shares.

"What have I done wrong? I have not ousted any promoter, I am not harming shareholders. The beauty of it is, I did not even want to change the Shaw Wallace management." Rajaram Chhabria

So questions are also being asked as to whether Chhabria should have taken permission from the Reserve Bank for buying the holding company.

Chhabria says he does not, since it was a completely offshore operation, but it is possible that permission is in fact required.

This is because R.G. Shaw has no activity other than holding the Shaw Wallace shares. So, according to one interpretation of the law, the buying of R.G.Shaw's shares is tantamount to buying Shaw Wallace shares - an act which requires Reserve Bank's permission.

Such problems have arisen because Shaw Wallace's Indian management, in the person of Chairman S.P. Acharya, has strongly opposed Chhabria's entry into Shaw Wallace.

Going well beyond the role of a professional manager employed by the shareholders, Acharya has lobbied with the Government, with the Malaysian company (Sime Darby) that sold the shares in the first place, and with the public sector financial institutions, which own 24.9 per cent of Shaw Wallace shares. He has held a succession of quick board meetings, proposed at one stage to increase the membership of the board (at which point Chhabria threatened to sue) and refused so far to speak to Chhabria.

All this was probably because he believed that Chhabria was acting in collusion with Vijay Mallya, who operates as a rival to Shaw Wallace in the liquor business.

But Chhabria stoutly insists that he is acting on his own, so Acharya might well have taken on a major fight without good reason. Acharya himself could not be reached for comment, and he has so far refused to speak to the press on the subject.

Last fortnight, Chhabria said he was prepared to facny enquiry by the Government. "I will give them documents even if they don't ask for them. What have I done wrong? I have not ousted any promoter, I am not causing any harm to minonty shareholders. The beauty of it is, I did not even want to change the Shaw Wallace management. In fact, if Mr Acharya tells me tomorrow that he is resigning, I do not have anyone to replace him."

While Chhabria did the rounds in Delhi and Acharya planned the next step in a battle that has become the talking point in the corporate world, more fireworks seemed certain in the future.

The stage for the battle royal was set last October, when Chhabria got a call from the Grindlays Bank's corporate division, asking him whether he was interested in buying Shaw Wallace. "I thought the bank might be joking," Chhabria recalls, but he nevertheless consulted Vijay Mallya of United Breweries.

"He knew the liquor business, and I was insisting he get involved, but he was not interested," says Chhabria, who also tried to strike a deal with his partner in the Dunlop India acquisition, R.P. Goenka. "Goenka is like a father to me, and he has adopted me as his son, but he said he did not want to be in the liquor business," says Chhabria, who finally decided to go it alone.

The bidding started soon afterwards, with a south Indian group providing the competition. Chhabria started at Rs 90 for each Rs 10 share, marginally higher than the going stock-market price, but this was steadily pushed up to Rs 124, at which level the competition dropped out ultimately.

On January 7, the Malaysian Central Bank gave its permission for the share sale, and Chhabria was called upon to pay up in seven days. On January 10, he flew to London armed with a banker's cheque for $23.4 million.

The next day brought the first shock: Sime Darby said the deal was off and told Chhabria that they would invite fresh tender bids. Also, Shaw Wallace's Indian management would now be allowed to put in a bid through an overseas nominee.

Recalls Chhabria: "Having flown to London at a few hours' notice, and since I had mentally set myself to acquire the company, this business of a tender was not acceptable." But his lawyers told him there was little he could do about it, so he finally decided to bid again.

This he did with native shrewdness. He offered Rs 2 per share more than the highest bidder, with a maximum price of Rs 145 per share, and payment in 24 hours. His rivals stopped at Rs 140, so he finally paid Rs 142.

Interestingly enough, the rivals had included the Canadian Seagram whisky manufacturers (who have been trying to come into India for the last two years) and Nabisco Brand (which controls the Calcutta-based Britannia Industries).

Chhabria suspects that Nabisco may have been acting on behalf of the Indian management, and he is forthright in his comments: "I have paid $4 million extra because the management of Shaw Wallace decided to put up a rival bid and made Sime Darby go back on its earlier commitment to me." The frustrated buyer adds that he has made several efforts to meet Acharya, "but he has not even spoken to me on the telephone".

Once Chhabria was stymied by the action of the Company Law Board, there were other equally interesting developments.

On March 5, Chhabria got a telex message from a firm of merchant bankers in Singapore, offering him a way out. The bankers, acting on behalf of Nabisco Brands, suggested that certain parts of Shaw Wallace's business could be transferred to the Nabisco group, leaving the rest to Chhabria.

The interesting part of the message was that Nabisco would also take the present management of Shaw Wallace with it.

Chhabria suspects that the offer of a partial buy-out was made in the hope that he would have got tired of the stalemate on the subject, and believes that this points to a partnership between Acharya and Nabisco.

His reply to the merchant banking firm was in the negative, and Chhabria has also rejected an offer to sell out his holdings at a profit of some $8 million.

Says Chhabria: "I do not buy companies to sell them. I am not a greenmailer." (Greenmailers are corporate raiders who buy substantial shareholdings in a company and then threaten to take control unless their holdings are bought out at a higher price.)

Talking of the Nabisco offer, Chhabria says: "This is like my ordering a cup of coffee for Rs 6. At that stage you put a fly in the coffee, then take out the fly and offer me Rs 60 if I drink the coffee. Will I drink the coffee?" Continuing further in this injured tone, he says: "I have been kicked around like a football from pole to pole, but I am not someone who can be threatened."

He says Shaw Wallace's attraction is its computer software business, which Chhabria thinks can be developed quickly. "I have Japanese friends who can help exploit Shaw Wallace's software business. At a meeting in Davos (Switzerland), I told the president of a giant Japanese company that if he gave us the hardware we could give him the software, and they were willing."

However, all such plans now have to be kept in abeyance till the Company Law Board completes its investigation, and until it becomes clear whether the Reserve Bank needs to clear his investment.

The Dubai-based businessman could hardly have expected this cartload of trouble, given the smooth manner in which he has moved into three other Indian companies in the last six months: Dunlop India, Gordon Woodroffe and Bayer India. He has already taken over as chairman of Dunlop, is in the driver's seat at Gordon Woodroffe. and is being co-opted on to the board of Bayer India.

Clearly, he had expected a similar sequence of events in the case of Shaw Wallace. And the management opposition must clearly have caught him completely by surprise.

He is now trying to regain the initiative, talking to journalists, to the Government and to anyone else who he thinks can be helpful, and he says: "I believe the new Government will give me justice." But at the moment, the great Shaw Wallace take-over remains stuck at a stalemate, with Acharya planning his next move and Chhabria fuming in frustration.

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